How Social Media Improves the WOM Effect

"As with most services, the most common selection factor is word-of-mouth referral. This is not surprising, since most people don't have an objective way of judging the quality of financial advice, insurance claims handling, or other types of services. when seeking the services of a stockbroker, pension adviser, private bank, or hedge fund manager, both institutional and consumer buyers seek the advice of their peers."

If Ehrlich and Fanelli are correct regarding their assessment (and I believe they are), then bank boards and CEOs should ensure that their banks have considered the need for social media within their overall marketing plan. Why? Because of the effect that social media has had on word of mouth. The Community Banker's Guide to Social Network Marketing states the following:

"Researchers have observed that social media is affecting the way people communicate, make decisions, socialize, learn, entertain themselves, interact with each other and do their shopping. Accordingly, social media has caused a significant change in the market power of consumers, taking it away from product and service providers and giving it to consumers. The vast and growing knowledge base collected and maintained by social media applications has given consumers the power to make more informed decisions, forcing product and service providers, including banks, to deal in a more honest and open manner or lose the transaction to a competitor that does. And while social media presents serious challenges to businesses, it also provides opportunities to those that embrace the change and work within the new paradigm." "

Based on the power of social media and its ability to shape consumer behavior, every bank should consider and discuss the adoption of social media. While social media may not be right for every organization, the discussion should take place rather that just assuming for or against it without a meaningful discussion.

If buying decisions relative to bank products are highly dependent on word of mouth, and if word of mouth is a significant activity taking place on social networks, banks need to ensure that they, at a minimum are monitoring the conversations taking place that involve them. For example, in my last post I noted an actual case in which AT&T proactively monitored Twitter conversations to identify and resolve potential customer service issues. At a minimum, this same approach should be used by all banks.

As noted by Erlich and Fanelli, consumer buying decisions are shaped by word-of-mouth. By monitoring and responding to conversations taking place on social media platforms (social networks, blogs, etc.), the bank has the ability to demonstrate to the community that they are interested in truly serving their customers. But more importantly, these interactions go a long way in turning negative word-of-mouth into positive word-of-mouth, resulting in improved sales.

4 comments:

You said that, "For example, in my last post I noted an actual case in which AT&T proactively monitored Twitter conversations to identify and resolve potential customer service issues. At a minimum, this same approach should be used by all banks."

Let's repeat the important part - "At a minimum, this same approach should be used by all banks."

It is good to take control of a customer service issue, and most importantly learn from it so that issues no longer end of in the social media space.

There is another thing that this monitoring can find, when customers and non-customers sing your praises. There is nothing like publicly thanking someone for saying something nice about you.

Dave,I visited your blog post (http://weplayintraffic.com/2009/09/03/the-backwater-of-social-media-retail-banking/) and agree with your assesment of the banking industry's use of Facebook. As I have met with bankers (community bankers) over the course of the past year I have found that Facebook pages have been created without any direction or knowledge. These marketing managers or lower level employees with some tech savvy have created the account. The account then goes dark because it was not a well thought out plan. In other words, they create the account and then wonder, "now what?" That then results in the gaps you mention. There is seldom a well thought out and documented plan of attack that defines the content, frequency of content and content or community manager assigned to keeping things fresh and initiating conversations.

With regard to Twitter I will disagree with your assessment of the number of banks. I have seen a significant increase among banks. And yes, the purpose is mostly for customer service/reputation risk monitoring. Honestly, I think this is a wise idea. Consumers want to ask questions on their terms. Today this means using Twitter. As such, banks are well served to have someone in customer service fetching these queries. I discuss this concept in a blog post at http://socialmediabanking.blogspot.com/2009/09/how-to-use-twitter-to-support-customers.html.

Regardless of the value of Twitter as a customer service tool, marketing should also have use of the account to tweet on the latest and greatest and provide links to more info. But again, similar to the Facebook issue, no one has elevated the project to get it the resources necessary to ensure that salary is being paid for the explicit purpose of maintaining the content and carrying out the conversations.

As a former bank regulator and Chief Compliance Officer of several banks, I assure you that the regulatory hurdles are insignificant. Anyone using that excuse either is not familiar with regulation or is making excuses.

I agree that banks need to jump on board. But I disagree with the implied statement regarding age. I'm in my forties and have hundreds of Facebook friends, who are all mostly over 35 - and many in their 50s. Social media is no longer a kids game. But that is a good thing. Banks now have access to a platform that is used by all ages, making it even more valuable.